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Goldman Sachs cuts China’s GDP growth forecasts amid energy crunch


Workers at the Zhong Tian (Zenith) Steel Group Corporation in Changzhou, China’s Jiangsu province on May 12, 2016.

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Goldman Sachs economists have cut their forecasts for China’s economic growth in 2021 as the world’s second-largest economy faces “yet another growth shock” in the form of constraints on energy consumption.

The Wall Street banking giant now expects China’s GDP to grow 7.8% in 2021 compared with a year ago — that’s lower than its previous forecast for an 8.2% year-on-year expansion. Goldman’s downgrade followed similar moves by Nomura and Fitch.

In a Tuesday report, economists claimed that a new constraint, although tightening in nature, on growth is the increased regulatory pressure to reach energy-consuming and energy intensity targets.

Chinese President Xi Jinping announced in September last year that China is aiming to reach peak carbon emissions by 2030 and become carbon neutral by 2060. The announcement launched national and regional plans to cut coal production.

Hit to factory output

Efforts to reduce emissions and a shortage in coal supplies caused power shortages across China that halted production at factories including those supplying Apple and Tesla, reported Reuters.

“The peculiar nature of the Covid shock has made the economy more energy-intensive, at least temporarily,” said Goldman’s economists, explaining that an exports boom following the pandemic increased the demand for power from manufacturers.  

They said that efforts to decrease coal-fired emissions as well as a reduction of coal imports had had an impact on supply, leading to sharp increases in prices.

Goldman stated that China’s economy would grow slower in the third quarter and fourth quarters of this year due to production reductions by manufacturers and lower fiscal support.

China’s economy is expected to expand by 4.8%, a difference of a year earlier. It will also grow 3.2% in its fourth quarter. Goldman previously predicted that the fourth and third quarters would see growth of 5.1%, 4.1%, and 3.2%, respectively.

China said its economy grew 7.9% year-on-year In the second quarter of this year.

Impact on Asia-Pacific

Rising uncertainty in the Chinese economy will affect economic growth prospects across Asia-Pacific, ratings agency S&P Global Ratings said Tuesday.  

S&P Global Ratings downgraded China’s 2021 growth projection to 8.3% from 8.3%. From 7.5%, the agency has also decreased its projected growth for Asia-Pacific this year to 6.7%.

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“One downside and rising risk relates to a changing growth path in China,” Paul Gruenwald, global chief economist for S&P Global Ratings, said in a report.

According to the agency, persistent Covid waves also have weakened the region’s economic outlook. But vaccination rates have increased while countries have become more tolerant of further Covid outbreaks — which will allow economies to gradually open, it added.  

— CNBC’s Evelyn Cheng contributed to this report.